Bank of Canada Cuts Interest Rate for First Time in Four Years

The Bank of Canada (BoC) has surprised markets with a 25 basis point cut to its benchmark interest rate, lowering it to 4.75%. This move comes as inflation in the country has slowed and is now at a three-year low of 2.7%.

The BoC has kept rates at a two-decade high of 5% for almost a year, hoping to curb runaway inflation. However, with inflation now showing signs of easing, the central bank is signaling that it is time to loosen monetary policy. The bank's governor, Tiff Macklem, noted that "with further and more sustained evidence underlying inflation is easing, monetary policy no longer needs to be as restrictive."

This rate cut adds Canada to a growing list of countries, including Sweden and Switzerland, that are bringing down rates after seeing inflation cool. The European Central Bank (ECB) is expected to follow suit when it meets on Thursday.

While inflation has remained below 3% for four consecutive months, it still remains higher than the Bank's target of 2%. The governor noted that if this trend continues and the bank's confidence that inflation is headed towards the target increases, "it is reasonable to expect further cuts to our policy interest rate."

However, Macklem reminded that the bank will take decisions meeting by meeting and will continue to monitor indicators, such as demand and supply mismatch, inflation expectations, wage growth, and corporate pricing behavior, to guide its policy decisions.

The surprise rate cut is likely to bolster expectations of further reductions, although the bank has indicated that progress toward inflation targets will likely be uneven and warned of remaining risks.


Bank of Canada website:

Reuters: "Bank of Canada surprises with rate cut, flags likely further easing"

ABC News: "Bank of Canada cuts rates for first time in four years, signals likely further cuts to come"

Business Insider: "Canada's central bank cuts rates for the first time since 2020 and says more cuts are likely",policy%20interest%20rate.%E2%80%9C%20Bloomberg%20News "Bank of Canada cuts rates for the first time since 2020"

Reuters: "Canada's inflation slows again in April, sliding further below the bank's target"

The Balance: "What to Expect from the Bank of Canada's Monetary Policy",conducts%20monetary%20policy%20for%20Canada.

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